Lasting Power of Attorney: 6 essential questions answered

We recently recorded a video webinar with Tish Hanifan, qualified barrister and founder and joint chair of the Society of Later Life Advisers (SOLLA), in which she answered advisers’ questions about what estate planning they can do when there’s a Lasting Power of Attorney (LPA) in place.

Below you’ll find Tish’s answers to six of the most common LPA questions that were submitted by advisers. And if you want to watch the full video webinar, click here.

What types of LPA are there and what are the key differences?

There are two main types of LPA. A Property & Finance LPA could enable an attorney to operate a bank account, receive benefits or pensions, pay bills and buy or sell a property. This type of LPA can be used before capacity is lost, as well as after. For example, someone may choose to set up a Property & Finance LPA because they are often out of the country and it’s not practical for them to operate their bank account. Or they may have the capacity to make decisions, but have physical limitations that mean they find it hard to get to the bank or to meetings, for example.

The Health & Welfare LPA can only become effective once mental capacity is lost. The attorney can make decisions such as what hospital treatment is provided and what nursing home is most appropriate. This type of LPA cannot consent to or refuse life sustaining treatment unless otherwise specified in the LPA.

Note that it’s important to remember that an LPA can only be used once it is registered.

Who assesses mental capacity?

It is the attorney’s responsibility to decide whether the donor lacks capacity to make this specific decision, but complex decisions may require a GP or other specialist.

Mental capacity is time and decision specific. The donor cannot be deemed generally mentally incapable, but rather lacking capacity at this time, about this decision. Fluctuating capacity is one of the reasons why keeping methodical notes is so important.

It could also be helpful to record (audio or film) the decision-making process, with consent from the donor.

The two-tier test that would apply to assessing mental capacity is:

Tier 1. Is there an impairment of or disturbance in the functioning of a person’s mind or brain? If so,

Tier 2. Is the impairment or disturbance sufficient that the person lacks the capacity to make a particular decision? Are they unable to:

  • Understand the information (nature, purpose and likely effects of decision).
  • Retain information in their mind.
  • Use that information to inform their decision-making.
  • Communicate their decision.

As an adviser you are not expected to carry out a capacity assessment. That said, as someone that works closely with a client you may be in a position to identify the need for an assessment before other professionals or indeed family members, especially if you are in regular contact with the client or have known them for some time.

If there is an LPA in place but the donor has mental capacity, can they make a gift for inheritance tax planning without involving the attorney?

Absolutely. If an individual still has capacity, they can work directly with an adviser to do their own inheritance tax planning, including if they have an LPA registered. Recordkeeping around this is important.

Is it still possible to set up a trust when there is an LPA in place?

If the donor has lost mental capacity, then setting up a trust would require approval from the Court of Protection. Settling assets into a trust effectively removes assets from the donor’s estate. This may not be considered in their best interest. Going to the Court of Protection may be time-consuming, costly and it’s not guaranteed that approval would be granted.

What are the options for clients who do not have anyone close enough to them to act as an attorney?

An Independent Mental Capacity Advocate (IMCA) can be instructed to represent any person aged over 16, who has no one able to represent them, and who lacks capacity to make a decision. The safeguard is intended to apply to those people who have no network of support, such as close family or friends, who take an interest in their welfare. In England, IMCAs are appointed by a local authority, and in Wales they are appointed by a local Health Board or other NHS body.
An individual can also appoint a professional person to act on their behalf, for example a solicitor or an accountant. They will be subject to regulation by their respective professional bodies, so this may be reassuring. However, they may charge for these services so these charges should be made clear in advance.

Where to find out more

To hear more about how LPAs can affect estate planning, watch the full video webinar here.

Tish Hanifan

Important information
Octopus products put investor capital at risk. We do not offer investment or tax advice. Personal opinions may change and should not be seen as advice or a recommendation. Issued by Octopus Investments Limited, which is authorised and regulated by the Financial Conduct Authority. Registered office: 33 Holborn, London, EC1N 2HT. Registered in England and Wales No. 03942880. Issued: February 2019. CAM07817.